(FORTUNE Magazine) – Economists and tax gurus have long dreamed of a simple, broad-based tax on consumption to encourage saving, investment, competitiveness, and, yes, jobs. But the leading candidate, a value-added tax, has stumbled repeatedly on Capitol Hill. Conservatives maintain it would become a money machine, funding ever more spending. Liberals argue VAT's burden would fall hardest on low- income workers. Now Senators Sam Nunn (D-Georgia) and Pete Domenici (R-New Mexico) are preparing to introduce in Congress an alternative that they hope will avoid ideological gridlock. Their plan would allow individuals and companies to calculate their taxes a new way, based not on their income as traditionally understood, but on consumption. Businesses would be able to subtract from annual sales what they spent that year on goods and services, including inventories and capital equipment. So, rather than having to depreciate new machinery over several years, companies could expense it immediately. To encourage exports companies would be given rebates for U.S. taxes paid on sales of goods and services that are sent overseas. U.S. operations abroad would not be taxed by Washington at all. What remains after the subtractions -- corporate consumption -- would be taxed at a flat rate of about 10%, which would produce about the same amount of revenue as the current tax code. What's the downside? Wages would no longer be deductible. Companies would get a tax credit equal to the 7.65% payroll tax set aside for Social Security, but that's a much smaller benefit than subtracting wages before calculating taxes. Nor would interest payments on debt be deductible. Individuals would add up their income (wages, interest, dividends, capital gains) and subtract their savings and investments -- all stock and bond purchases, down payments on a home, and probably mortgage interest. What's left, after a $15,000 or so exclusion, would be taxed progressively up to a rate of about 40%. Will the Domenici-Nunn plan succeed? It's vulnerable in some important ways. What becomes of retirees who have been saving after-tax dollars only to face higher rates on consumption in old age? Also, without some adjustments the shift in preferential tax treatment from labor toward capital might not go down easily with those who represent workers or worry that downsizing has already gone too far. But the Senators may have moved the ball a little further toward a worthy goal: a tax policy that is simple and fair and encourages saving.

CHART: NOT AVAILABLE CREDIT: NAI LEE LUM FOR FORTUNE CAPTION: THE DOMENICI-NUNN PLAN